On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was formally signed into law—and with it, sweeping changes to American tax law were enacted. One of the most notable tax changes under OBBBA was the implementation of a rule that allows businesses to fully and immediately deduct domestic research and development costs in the year they are incurred.
At first glance, this change seems like it should be a major benefit to businesses conducting domestic research and development—and for the most part, that is true. However, there are some major complexities surrounding these new tax policies that business owners should be aware of to properly claim their deductions and avoid potential scrutiny down the road.
An Overview of New R&D Credit Rules
Essentially, the signing of OBBBA into law effectively reversed previous tax policy under the Tax Cuts and Jobs Act of 2017 that required businesses to spread out their R&D deductions over a period of five or more years. As a result, businesses are now permitted to deduct those expenses in the year they are incurred. It is worth noting, of course, that there are limitations when it comes to the R&D expenses that qualify.
Specifically, these expenses must be incurred domestically, meaning that any portion of R&D that is conducted in another country will need to be deducted under previous rules (spread out over a period of up to 15 years).
In addition to being limited to domestic research and development, a four-part test is used to determine eligibility for the credit. Specifically, qualifying research expenses must meet all the following criteria:
- Be conducted for a permitted purpose, such as to improve a component of the business.
- Be technological in nature, relying on hard sciences to carry out.
- Be intended to eliminate technical uncertainties.
- Follow a systematic process of experimentation.
What About Form 6765?
In addition to direct changes to the R&D tax credit and how it can be claimed by businesses, it is important for businesses to be aware of some additional changes that could be made to the form used to claim the credit: Form 6765.
Specifically, proposed updates to the form would require taxpayers claiming the credit to provide the following information:
- A list of all qualifying R&D business projects/components.
- The exact amount of all R&D expenses claimed for each project with detailed descriptions of the experimentation process for each.
- Whether any acquisitions or dispositions occurred during the given tax year.
Previously, none of this information was required on Form 6765, so these additional hoops could create headaches for businesses looking to claim the R&D tax credit. Still, the IRS has claimed that the reasoning for these proposed changes is to help businesses ensure that their R&D claims are substantiated, thus saving them from potential problems down the road.
While new form requirements have not been implemented for the 2025 tax year, it is expected that they will be for 2026.
The Importance of Detailed Documentation
If your business plans to claim immediate expensing for its qualifying R&D expenses in the coming years, it's important to make sure you carefully document all of your research and development costs moving forward. Unfortunately, cases have been brought against businesses that have claimed the credit without proper documentation, a sign that careful recordkeeping will be essential for businesses.
Specifically, your team members may need to get into the habit of recording any and all technical uncertainties as part of their R&D processes, as well as carefully documenting every aspect of the experimentation process. Now is also a good time to start associating employee time and costs with specific projects, which may save you time and hassle when it comes to filling out Form 6765 down the road.
The Bottom Line on R&D Credit Updates
Changes to the R&D tax credit for businesses should largely work in your favor if you conduct your research and experimentation domestically. At the same time, new complexities surrounding Form 6765 can make claiming this credit a bit more work than it was in the past. For many businesses, however, the extra work will be more than worth the payoff, as the average credit can easily total anywhere from 6% to 10% of a company's total R&D costs.
Meanwhile, because these credits reduce tax liability dollar-for-dollar, they can make a huge difference in your company's bottom line. The key is to stay on top of reporting requirements and, of course, to seek guidance from an experienced and trusted tax professional if you need help maximizing your business deductions.
If you have any questions or would like additional information, please contact our tax services team.